Archived Forensic News November 2014
Financial/Accounting
Fraud
U.S. SEC reports rise in whistleblower tips in fiscal 2014
“The U.S. Securities and Exchange Commission received more than 3,500 tips from whistleblowers in fiscal year 2014, the largest number received since the program went into effect three years ago. The SEC announced the increase in its November 17 annual report, which tracks the success of the whistleblower program and how much it pays out each year in awards. Fiscal 2014, which ended September 30, marked a record year for the SEC’s program, both in terms of the number of tips received and the amounts it awarded tipsters. It authorized awards for nine whistleblowers, including a record payout of more than $30 million to a whistleblower overseas who had helped alert the SEC to what it described as an ongoing fraud. The 2010 Dodd-Frank Wall Street reform law gave the SEC the power to start a whistleblower program that lets the agency reward people who report misconduct, if that tip leads to the collection of more than $1 million in monetary sanctions. The program was inspired in part by the Bernard Madoff scandal, in which the SEC received numerous tips about his Ponzi scheme but failed to detect the fraud for decades. According to the SEC’s report, the agency received 3,620 tips from whistleblowers in fiscal 2014, compared with 3,238 in fiscal 2013. The SEC said it fielded over 2,700 phone calls from members of the public. It received tips from every state as well as Washington, D.C. and Puerto Rico. The states where the most tips originated included California, Florida, New York and Texas. It also got tips from outside the United States, with the bulk of those coming from Britain, India, Canada, China and Australia. The SEC added that “significant” additional payments also were made to people who received awards in other years because it has since been able to collect more money from a variety of enforcement actions. One whistleblower, for example, saw the award increase from an initial $50,000 to more than $385,000. At the same time, the SEC’s report also discussed some of the tips it has rejected during the fiscal year. In one extreme example, the SEC said it rejected 143 claims submitted by one individual whom the SEC accused of making “false and baseless claims” that harmed the rights of legitimate whistleblowers. The SEC said it previously had rejected another 53 claims from the same person.
Click here for full article.
U.S. Justice Dept collects record $24 bln in penalties in fiscal 2014
The U.S. Department of Justice collected a record $24.7 billion in penalties from fraud and other cases in fiscal year 2014, as fines against banks for financial misconduct soared. Collections from civil and criminal actions, including money collected on behalf of other agencies, was $8 billion in 2013, and $13 billion in 2012. Collections in 2014 were boosted by multi-billion dollar payouts from JPMorgan Chase & Co and Citigroup, Inc. to resolve claims they misled investors about the quality of mortgage bonds in the run up to the financial crisis, and include $11 billion in payments made to federal agencies or states. Payouts in fiscal year 2014, which ended September 30, also include hundreds of millions of dollars in fines levied on UBS AG and Royal Bank of Scotland Group Plc. “It shows the fruits of the Justice Department’s tireless work in enforcing federal laws ... and in holding financial institutions accountable for their roles in causing the 2008 financial crisis,” Attorney General Eric Holder said in announcing the total collections.
Click here for full article.
HSBC charged in Belgium over money laundering, tax fraud
A Belgian judge has charged the Swiss private banking arm of HSBC Holdings Plc with tax fraud and money laundering, accusing the British-based bank of offering diamond dealers and other wealthy clients ways of hiding cash and evading tax. Prosecutors said the charges related to business carried out by a Swiss unit of HSBC for wealth management clients, many of them from the large diamond trade in the northern Belgian city of Antwerp. It said the alleged activities could have cost Belgium hundreds of millions of euros in lost tax receipts. The action follows the theft of personal details of HSBC private banking clients in Switzerland in 2010, information that has been passed on to Belgian and French authorities. HSBC Private Bank said it had been notified that it had been placed under formal investigation by a Belgian judge who, along with French authorities, was examining whether the Swiss unit acted appropriately on tax reporting requirements. “Both the Belgian and French investigations have been notified in our filings previously and we will continue to cooperate to the fullest extent possible,” the bank said in a statement. The charges come more than a year after homes of some 20 clients of HSBC Private Bank (Switzerland) were searched in October 2013 in connection with the investigation. A spokeswoman for the prosecutors said charges were currently only against the bank and certain employees and not its clients. The judge will ask several employees of HSBC Private Bank to appear for questioning. “The Swiss bank is suspected of having knowingly eased and promoted fiscal fraud by making offshore companies available to certain privileged clients,” prosecutors said in a statement. The statement said the offshore companies were based in Panama and the Virgin Islands, with no economic activity and their only aim was to hide the wealth of the bank’s clients.
Click here for full article.
UK will hand fraud agency funds needed for forex probe-source
Britain’s anti-fraud agency will get any extra funds it needs to pursue a criminal investigation into alleged rigging of the $5.3 trillion-a-day currency market. The Serious Fraud Office (SFO) had asked for an extra 26.5 million pounds ($41.5 million) to help fund complex inquiries into issues such as financial benchmark manipulation, but the source did not say how much would be given. The SFO investigates and prosecutes high-profile cases with a relatively meagre annual budget, set this year at 35 million pounds ($55 million), which is under pressure given the list of issues it is probing. These also include an inquiry into Barclays Plc’s 8 billion pound money-raising in 2008 and an investigation into accounting practices at retailer Tesco Plc, as well as looking into the manipulation of benchmark interest rates such as Libor. The source said finance minister George Osborne had written to the SFO, which can request “blockbuster funding” if the cost of cases exceeds a percentage of its budget, to say it will be given the financial support it needs for the forex probe. The SFO opened a criminal investigation into allegations of fraudulent conduct in the forex market in July and said individuals could be charged next year. “Given the importance of this work, the Treasury will provide the required funding for this investigation. We must continue to pursue criminal wrongdoing at the highest level,” Osborne wrote in his letter to the agency, the source said. The SFO’s foreign exchange probe is in addition to a regulatory clampdown which resulted in six major banks (http://www.reuters.com/sectors/industries/overview?industryCode=128&lc=int_mb_1001) being fined a total of $4.3 billion. The fines were for failing to stop traders from trying to manipulate the foreign exchange market, following a year-long global investigation. The levies brought total global penalties for manipulation of financial benchmarks to more than $10 billion over two years. Royal Bank of Scotland (http://www.reuters.com/finance/stocks/overview?symbol=RBS&lc=int_mb_1001), HSBC, JP Morgan, Citigroup, Bank of America Corp (http://www.reuters.com/finance/stocks/overview?symbol=BAC&lc=int_mb_1001) and UBS were hit with penalties. Barclays is still in talks with authorities over a settlement. Britain is keen to be at the forefront of global inquiries into the forex market, partly because about 40 percent of it is based in London.
Click here for full article.
Dutch engineer Imtech says investigating fraud allegations
Dutch engineering and construction firm Imtech is investigating allegations it operated a cartel to overcharge German energy company RWE for the building of a power plant in the Netherlands. The allegations, first reported in Dutch newspaper De Telegraaf and German newspaper Handelsblatt, follow earlier allegations of accounting fraud at its German and Polish operations. Imtech said it had opened an internal investigation with the help of external experts immediately after receiving information from a whistleblower on August 29, but that it had not intended to make public the allegations until the process was complete. “The investigation is still running,” said Chief Executive Gerard van de Aast in a telephone briefing. “At this moment there is no proof that competition law has been violated.” RWE said it would seek compensation if fraud was proven. “If it should turn out that there were agreements between third parties that were disadvantageous to our company, we will demand compensation, as RWE always does in cases of cartel agreements,” it said in a statement. De Telegraaf reported that partners in the cartel got compensation for keeping prices high by sending false invoices to Imtech in a fraud that had cost RWE’s Dutch unit Essent “millions”. Imtech said the allegations related to possible wrongdoing in the period between 2008 and 2010. It said legal restrictions prevented it from giving any details on the progress of the investigation, including on whether police or competition authorities were involved. Once a darling on the Amsterdam stock exchange, Imtech earlier this year carried out a 600 million euro rights issue, announced plans to sell its information technology arm and cut 750 jobs in a bid to reduce hefty debts and restore the company to profitability. Imtech handed over documents relating to the earlier alleged accounting fraud to German and Polish authorities last year. They have yet to take a decision on how to proceed.
Click here for full article.
Petrobras Official Takes Leave in Possible PwC Resolution
A senior Petroleo Brasileiro SA (PETR4) (http://www.bloomberg.com/quote/PETR4:BZ) executive cited in a corruption investigation took a leave of absence, clearing the way for the company to report earnings and debate a fuel-price increase. Sergio Machado, head of the state-run oil producer’s transport unit Transpetro, will take 31 days unpaid leave. The decision follows a refusal by auditor PricewaterhouseCoopers (PwC) to sign off on quarterly results bearing his signature. Petrobras delayed discussing a gasoline-price increase at an October 31 board meeting where members disagreed about dismissing Machado. Petrobras will seek a 5 percent increase in gasoline prices at a board meeting. The Rio de Janeiro-based producer is at the center of a multi-billion-dollar money-laundering and bribery investigation that has put President Dilma Rousseff (http://topics.bloomberg.com/dilma-rousseff/), who was Petrobras chairwoman from 2003 to 2010, on the defensive. It was a major theme in last month’s elections that Rousseff won by a small margin. Machado, who was first elected to the senate in 1994, joined Calheiros’s PMDB party in 2001 that became part of former president Luiz Inacio Lula da Silva (http://topics.bloomberg.com/luiz-inacio-lula-da-silva/)’s ruling coalition in 2003. It remains part of Rousseff’s political alliance. Machado has headed Transpetro since 2003. PwC alerted Petrobras in written correspondence before the board meeting that it wouldn’t approve Transpetro accounts signed by Machado and urged it to take action, according to the documents reviewed by Bloomberg. PwC said it may need to notify U.S. authorities and cancel the contract with Petrobras that expires at the end of this year. Petrobras complied with another of the auditor’s requests by concluding internal investigations into three refinery projects mentioned in the corruption investigation. PwC’s ultimatums highlight how the corruption allegations expose Petrobras to scrutiny in other jurisdictions where its securities trade. It also shows the company is deepening internal investigations to comply with market rules outside of Brazil (http://topics.bloomberg.com/brazil/) at the request of third parties. Management is dedicating time to investigate the claims and executives, including Chief Executive Officer Maria das Gracas Foster, have been traveling to Brasilia to testify before congress at a time it is trying to double production from deep-water fields in the Atlantic.
Click here for full article.
P&G halts operations, starts talks with Argentina over tax fraud charge
Procter & Gamble (P&G) temporarily suspended operations in Argentina after the country’s tax authority, which has accused the company of tax fraud, started meetings with the world’s No. 1 household products maker. Argentina accused the company of hiding income and over-billing $138 million in imports to get money out of the country, which three years ago introduced stringent capital controls in order to protect its fast-dwindling foreign reserves. Cincinnati-based P&G, the maker of Gillette razors and Tide detergent, runs three manufacturing plants and two distribution centers in Argentina. P&G, which earlier this year came under the scrutiny of Mexican authorities for alleged tax avoidance, said it had paid all the taxes owed but was “working to more fully understand the concerns and to constructively resolve them.” “If P&G’s operations in Argentina were suspended for a long period of time, it would make the upper end of 4–6 percent core EPS guidance more difficult to reach,” BMO Capital Markets said in a note. Argentine AFIP tax authority said it had suspended P&G’s operations in Argentina, retracting its right to export and import. The company said its Argentine operations contributed about 1 percent to its overall sales. P&G reported net sales of $83.1 billion in 2014. Argentina’s leftist government has been stepping up state intervention in the economy in an attempt to prevent its latest debt default from triggering a balance of payments crisis. The country has been banished from international capital markets since its 2002 default on about $100 billion in bonds, compounded by its fresh default on restructured bonds in July. The government is restraining access to foreign currency in a bid to retain central bank reserves, which have fallen 17 percent over the last 12 months, to about $28 billion.
Click here for full article.
House Dems Call for SEC Crackdown on Corporate Anti-Whistleblower Practices
Eight Democratic members of the House Committees on Financial Services and Oversight and Government Reform told Securities and Exchange Commission Chairwoman Mary Jo White to “promptly” inform them about the efforts the Commission is taking—as well as challenges the agency is facing—to address corporate practices to deter whistleblowers. In their letter (http://democrats.financialservices.house.gov/FinancialSvcsDemMedia/file/001%20Maxine%20Waters%20letters/2014_10_27%20Whistleblower%20Protection%20Letter.pdf), Rep. Maxine Waters, D-Calif., ranking member on the financial services committee, and Rep. Elijah Cummings, D-Md., ranking member on the oversight and government reform committee, expressed concern about reports of the use of “overly restrictive nondisclosure agreements and other employment arrangements that serve to deter whistleblowers,” which could threaten the effectiveness of the SEC’s Whistleblower Program, created under Dodd-Frank. The success of the SEC’s whistleblower program, the lawmakers told White, “may be fleeting if corporate actions that chill the environment for whistleblowers are not promptly and adequately addressed.” Since its launch in 2011, the lawmakers said, the SEC has received 6,000 whistleblower tips, complaints and referrals “from every state” as well as 55 countries. In just the last fiscal year, the lawmakers said, 139 enforcement judgments and orders have been issued. The letter cited a June Washington Post article, “Workplace Secrecy Agreements Appear to Violate Federal Whistleblower Laws,” which described the proliferation of agreements that may limit employees’ rights to report misconduct. “While there are legitimate reasons for companies to use confidentiality agreements to protect sensitive information, such agreements should be structured as narrowly as possible,” the lawmakers told White. “Employees should also be clearly informed that these agreements in no way restrict their right to voluntarily report securities law violations to the Commission.” The use of confidentiality agreements, attestations and other employment arrangements that do not abide by these principles appears to be in direct contravention to SEC Rule 21F-17, which states that “nothing shall impede communications to the Commission about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement,” the lawmakers said. “Taken together, pre-emptive legal maneuvering to silence prospective whistleblowers and retaliation against known whistleblowers undermine the continued success of the SEC’s whistleblower program and its crucial role in protecting investors,” the lawmakers said. “We urge the Commission to send a strong message to industry, including by bringing enforcement actions if necessary, that such acts will not be tolerated.” In addition to Waters and Cummings, the letter was signed by Reps. Gwen Moore of Wisconsin, Jackie Speier of California, Keith Ellison of Minnesota, Tammy Duckworth of Illinois, Stephen Lynch of Massachusetts and Matt Cartwright of Pennsylvania.
Click here for full article.
U.S. judge criticizes SEC use of in-house court for fraud cases
A Manhattan federal judge who gained prominence by rejecting U.S. Securities and Exchange Commission bank settlements urged the agency to reconsider becoming “a law unto itself” by increasingly bringing cases in-house instead of in court. U.S. District Judge Jed Rakoff in a speech warned the SEC’s growing use of administrative proceedings to handle securities fraud cases, such as insider trading, posed “dangers” to the impartial development of the law. Under the 2010 Dodd-Frank law, the SEC gained power to pursue more enforcement cases in-house, whereby trials are decided by staff SEC judges rather than juries. While the agency might be tempted to turn to SEC administrative judges to avoid trial defeats like in the insider trading action against billionaire Mark Cuban, the courts have “functioned very effectively for decades,” Rakoff said at a securities regulation conference in New York. “I see no good reason to displace that constitutional alternative with administrative fiat,” he said. In recent years, Rakoff has emerged as a prominent SEC critic. In 2011, he rejected the regulator’s $285 million settlement with Citigroup Inc, saying he had no idea whether it was fair. While an appellate court overturned that ruling in June, Rakoff fueled a debate over whether to let defendants settle claims without admitting or denying wrongdoing. His speech followed the filing of two lawsuits last month by activist hedge fund manager Joseph Stilwell and a Canadian accused of insider trading in Herbalife Ltd challenging the SEC’s use of administrative proceedings. Rakoff presided over a similar 2011 challenge by former Goldman Sachs Group Inc director Rajat Gupta to an administrative SEC insider trading case. The SEC later dismissed the case and re-filed it in court. In the fiscal year ending September 30, it launched 235 administrative proceedings, up 10.3 percent from 2013, the SEC said. The increased number of administrative cases coincided with a series of well-publicized insider trading losses in court, including the Cuban case in 2013 and in June in a lawsuit against Wynnefield Capital Inc fund manager Nelson Obus. Rakoff cited both cases in noting the SEC last fiscal year won only 61 percent of federal court trials. By contrast, it had a “hardly surprising” 100 percent win record administratively last year, he said. Beyond any fairness issues defendants face, Rakoff said the trend could hinder “the balanced development of the securities laws.” Unlike federal judges whose decisions are subject to a total appellate review, Rakoff said rulings from SEC administrative judges’ are given deference on appeal and presumed correct unless unreasonable. Rakoff urged the SEC to “consider that it is neither in its own long-term interest, nor in the interest of the securities markets, nor in the interest of the public as a whole, for the SEC to become, in effect, a law onto itself.”
Click here for full article.
EU auditor criticizes waste, urges tighter controls
he European Union’s auditor called on the bloc’s new executive to seek better value for taxpayers’ money as its report on the 2013 accounts estimated that up to 9 billion euros ($11.27 billion) may have been misspent. However, at a time when national governments under pressure from Eurosceptic parties denouncing waste in Brussels, the European Court of Auditors criticized member states’ failure to curb fraudulent and other unjustified claims for EU cash and praised the commission’s efforts to claw back misdirected funds. Signing off on its audit of the 148.5 billion euros ($186 billion) of EU spending last year, the court put its estimated “error rate” – a statistical measure of what was spent in breach of EU rules – at between 3.5 percent and 5.9 percent, giving a headline rate in the middle of the range of 4.7 percent, similar to 2012. That reflects an improvement on the 6.9 percent recorded in 2007, but exceeds levels seen in 2009-11 below 4 percent. In big net contributor states, like Germany and especially Britain, accounts of fraud, waste and inefficiency may fuel new grumbling about the EU. In the 1,200 or so sample cases tracked by auditors, they found irregularities of some kind in over 40 percent – including over half of those in the biggest parts of the budget, devoted to the likes of regional infrastructure and farm subsidies. The court noted that in such areas of spending, which account for much of a budget that makes up about 2 percent of public expenditures across the 28-member bloc, national officials manage much of the payment systems. It found misspending higher in such areas than in budgets managed solely by the commission. Among other examples, it cited the case of a Sardinian artichoke grower being found using harmful pesticides while claiming EU compensation for eschewing their use, a German airport contract awarded with EU support without tender rules having been followed and Scottish farmers claiming EU subsidies while not meeting rules for the notification of movement of livestock. Officials say national governments have little incentive to halt payments that would reduce the EU funds flowing to their country. Caldeira called for an effort to introduce incentives for curbing misspending and for directing money to those ends that do most to fulfill EU goals, such as creating jobs. The auditors did not single out member states for criticism, saying they found misspending across the euro zone, adding that in a large proportion of cases national officials should have seen mistakes by simply looking at information they already held. The court also welcomed efforts by the commission to correct errors and recover funds, estimating that without this action, misspending would have been 6.2 percent of total spending rather than 4.7 percent.
Click here for full article.
OW Bunker Oil-Trading Unit at Center of Fraud Had $2.1 billion in Sales
Dynamic Oil Trading (Singapore (http://topics.bloomberg.com/singapore/)) Pte, the unit of OW Bunker A/S (OW) (http://www.bloomberg.com/quote/OW:DC) at the center of fraud allegations, had $2.1 billion in sales from its incorporation in August 2012 to December 2013, company records show. Dynamic Oil, which supplies and trades bunker fuel used in ships, posted net income of $8.9 million for the period, giving it a profit margin of 0.43 percent, according to records filed with Singapore’s Accounting and Corporate Regulatory Authority. The records (http://www2.bizfile.gov.sg/bizfile/ViewImage?trans_no=E140069559&row_no=1) cast some light on the Singapore-based company blamed for triggering the bankruptcy of its Danish ship-fuel provider parent and two other units on November 7. OW Bunker, which was valued at almost $1 billion in an initial share sale in March, reported two Singapore employees to Danish police amid claims of $125 million in fraud and separately said it lost a further $150 million on bad risk management. OW Bunker, which has 38 offices worldwide, didn’t specifically mention Dynamic Oil in its share sale prospectus (http://owbunker.com/wp-content/uploads/2014/03/OW_Bunker_Prospectus_IPO_2014.pdf). Sales from OW Bunker’s Singapore operations accounted for $4.8 billion of its revenue in 2013, up from $2.5 billion a year earlier, according to the sale document. OW Bunker has two other Singapore-based companies: O.W. Bunker Far East (http://topics.bloomberg.com/far-east/) (Singapore), the city’s 13th biggest (http://www.mpa.gov.sg/sites/port_and_shipping/port/bunkering/bunkering_statistics/top_20_bunker_suppliers_by_volume.page)bunker supplier in 2013, and Wilhelmsen Marine Fuels. The company said in its 2013 annual report that it has no significant concentration of credit risk with any single customer. Dynamic Oil uses swap contracts with maturities of less than 12 months to hedge against the floating price physical contracts. The $1 million paid-up capital company had $53 million in bank overdrafts, about $144 million in trade receivables and $71 million in trade payables, according to the Singapore records.
Click here for full article.
Foreign Corrupt Practices Act (FCPA)
Alstom Said to Face More Corruption Charges From U.K. Prosecutor
Alstom Power Ltd, a subsidiary the French engineering company is selling to General Electric Co. (GE) (http://www.bloomberg.com/quote/GE:US), will be charged by the U.K. Serious Fraud Office before year-end, according to a person with knowledge of the situation. The British energy and transport services unit will be charged with corruption tied to work in Lithuania (http://topics.bloomberg.com/lithuania/). Some individuals may also be charged in connection with the case. It’s the second Alstom SA (ALO) (http://www.bloomberg.com/quote/ALO:FP) unit to face U.K. prosecution in 2014 after five years of corruption investigations in France, Switzerland, Brazil and the U.S. The SFO charged Alstom Network UK Ltd. in July with corruption in relation to transport projects in India (http://topics.bloomberg.com/india/), Poland and Tunisia (http://topics.bloomberg.com/tunisia/). One executive has been charged and more individuals are expected to face prosecution alongside him, people with knowledge of the situation have said. The Alstom Network and Alstom Power matters will probably be dealt with as two separate court cases, according to the person. Alstom is cooperating with the SFO and won’t comment on ongoing proceedings, the Levallois-Perret, France-based company said in a statement. The SFO began investigating Alstom in 2009. The charges filed this year against Alstom Network related to transport projects in India, Poland and Tunisia that occurred between June 2000 and November 2006, according to the agency’s announcement in July. One month earlier, Alstom agreed to sell most of its energy division, including the U.K. unit, to Fairfield, Connecticut-based GE. At 12.4 billion euros ($15.5 billion), it is GE’s largest-ever (http://www.bloomberg.com/quote/GE:US) acquisition. Alstom disposed of the business to focus on making trains amid slowing demand for power plants (http://topics.bloomberg.com/europe/) and rising competition from Asian manufacturers. The company plans to use the proceeds to expand its rail division and create energy ventures with GE.
Click here for full article.
Bio-Rad to pay $55 million to settle U.S. bribery charges
Bio-Rad Laboratories Inc will pay $55 million to end U.S. investigations into whether it failed to prevent bribery of government officials in Russia and other countries, and falsified records to conceal payments, U.S. authorities said. The company, which makes medical diagnostics products, entered a non-prosecution agreement with the U.S. Justice Department to resolve charges that it violated the Foreign Corrupt Practices Act by recording fake payments in connection with sales in Russia. It also entered a civil settlement with the U.S. Securities and Exchange Commission, which said units of the Hercules, California-based company made $7.5 million in improper payments to officials in Russia, Vietnam and Thailand to win business. “Public companies that cook their books and hide improper payments foster corruption,” Leslie Caldwell, head of the Justice Department’s criminal division, said in a statement. Bio-Rad’s payout includes a $14.35 million criminal fine to the Justice Department, and $40.7 million representing illegal profit and interest to the SEC, for violations that allegedly took place from 2005 to 2010. According to a statement of facts, a French unit of Bio-Rad paid intermediaries commissions of 15 percent to 30 percent that were supposedly in exchange for services related to sales to government entities in Russia, but which ultimately were not performed. The Justice Department said the criminal sanctions were not more severe because Bio-Rad disclosed the misconduct and fully cooperated in its probe, including by making employees available for interviews and producing documents from overseas. Bio-Rad also bolstered its internal compliance processes, and said it fired employees responsible for the misconduct. “The actions that we discovered were completely contrary to Bio-Rad’s culture and values and ethical standards for conducting business,” Bio-Rad Chief Executive Norman Schwartz said in a statement. Bio-Rad reserved $12.05 million for the settlement in the third quarter, on top of $43 million it had previously set aside.
Click here for full article.
Layne Christensen to pay $5 million to resolve SEC bribery charges
Layne Christensen Co, a water management and drilling company, agreed to pay nearly $5.13 million to resolve U.S. Securities and Exchange Commission charges that it bribed officials in several African countries to obtain business favors and reduce tax liabilities. The SEC said the payment was less than it might have been because Layne reported its misconduct, cooperated with the regulator, and undertook “extensive” steps to reduce bribery risks and prevent future violations of the federal Foreign Corrupt Practices Act. Layne did not admit or deny wrongdoing in agreeing to settle. In August, Layne said the U.S. Department of Justice closed a related probe without bringing charges. The company is based in The Woodlands, Texas. According to the SEC, Layne units in Africa and Australia obtained $3.89 million of illegal benefits from 2005 to 2010 by arranging for more than $1 million of improper payments to government officials in Burkina Faso, the Democratic Republic of the Congo, Guinea, Mali and Tanzania. The SEC said these benefits included tax savings, easier customs clearance, work permits, and relief from immigration and labor inspections. The $5.13 million payment reflects the value of improper benefits, $858,721 of interest and a $375,000 penalty. “Layne’s lack of internal controls allowed improper payments to government officials in multiple countries to continue unabated for five years,” Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a statement. “However, Layne self-reported its violations, cooperated fully with our investigation, and revamped its FCPA compliance program,” she added. “Those measures were credited in determining the appropriate remedy.”
Click here for full article.
Barclays sued by Saudi developer for $10 billion
A Saudi real estate company has sued Barclays for $10 billion, claiming the bank ceased pursuing lease payments due from the Saudi government on military complexes in the kingdom in order to obtain a lucrative banking license there. The company, Jadawel International, a unit of London-based MBI International Holdings Inc., claims Barclays “hatched a fraudulent scheme” to secure the rare Saudi banking license, selling out Jadawel in the process, according to the lawsuit filed in New York state Supreme Court. “Barclays believes the claim is without foundation and will vigorously defend it,” the bank said in an e-mailed statement. MBI, founded by Sheikh Mohamed Bin Issa Al Jaber, built two compounds and leased them to the Saudi government in 1999 to house U.S. defense contractors working in the region, the lawsuit said. The payments should have totaled more than $2 billion through 2017, it said. When Jadawel sought to refinance in 2001, Barclays helped assemble a group of lenders, according to the lawsuit. In 2002, the government partially defaulted and Barclays assumed responsibility to collect, it says. As a result, a lawsuit was filed in Manhattan federal court seeking damages from the Saudi government. Barclays later caused the lawsuit to be withdrawn, the new complaint said, and sought a bank license from the Saudi Capital Markets Authority, which was considering granting one to a Western financial institution for the first time in decades. “Barclays knew that any such license would be extremely lucrative and that its litigation against the Saudi government made obtaining such a license impossible,” the lawsuit said, accusing the bank of dropping the lawsuit and compromising the claims for its own benefit. In addition to being deprived of hundreds of millions of dollars in lease payments, Jadawel said it sold the compounds at a “substantial loss.” The bank, meanwhile, also was reported to have bribed a Saudi prince and government official to help obtain the license, the lawsuit said. In 2012, Reuters reported that the U.S. was investigating whether Barclays Plc paid bribes to win a banking license in Saudi Arabia. That October, Barclays disclosed that the U.S. Department of Justice and Securities and Exchange Commission were investigating the British bank’s relationships with third parties who helped it win or retain business and whether such relationships violate the Foreign Corrupt Practices Act, a law that bars bribes to officials of foreign governments.
Click here for full article.
Litigation Matters
Regulators fine global banks $4.3 billion in currency investigation
Regulators fined six major banks including Citigroup and UBS a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign exchange market, following a year-long global investigation. HSBC, Royal Bank of Scotland, JP Morgan and Bank of America also face penalties resulting from the inquiry that has put the largely unregulated $5 trillion-a-day market on a tighter leash, accelerated the push to automate trading and ensnared the Bank of England. In the latest scandal to hit the financial services industry, dealers shared confidential information about client orders and coordinated trades to make money from a foreign exchange benchmark used by asset managers and corporate treasurers to value their holdings. Dozens of traders have been fired or suspended. Dealers used code names to identify clients without naming them and created online chat rooms with pseudonyms such as “the players”, “the 3 musketeers” and “1 team, 1 dream” in which to swap information. Those not involved were belittled and traders used obscene language to congratulate themselves on quick profits made from their scams. Britain’s Financial Conduct Authority (FCA) fined five lenders $1.77 billion, the biggest penalty in the history of the City of London, and the U.S. Commodity Futures Trading Commission (CFTC) ordered them to pay a further $1.48 billion. The U.S. Office of the Comptroller of the Currency, which regulates banks, also fined the U.S. lenders $950 million and was the only authority to penalize Bank of America. Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years. FINMA will appoint a third party to monitor the bank’s observance of its rules after discovering it had received whistleblower reports about alleged trader misconduct in 2010 but failed to investigate them properly. Despite the payout, which brings the total fine for benchmark manipulation to over $10 billion in two years, banks still face further penalties as the U.S. Department of Justice, the Federal Reserve and New York’s financial regulator conclude their own investigations. U.S. authorities have tended to be more aggressive than their European counterparts in punishing big banks for misconduct. “We made the judgment that while more information is always better, we didn’t believe that the picture would materially change even if we spent additional years continuing to investigate,” said Aitan Goelman, director of enforcement at the CFTC. Britain’s Serious Fraud Office is also conducting a criminal investigation and there is the threat of civil litigation from disgruntled customers.
Click here for full article.
HSBC sets aside $1.8 billion for forex probe, misconduct
HSBC’s profits fell short of expectations in the third quarter after the bank set aside $1.8 billion for misconduct settlements and compensation for customers, including a potential fine for rigging currency markets (http://www.reuters.com/finance/markets?lc=int_mb_1001). The provision and a jump in HSBC’s everyday compliance costs show the impact of regulators’ increasing efforts to clamp down on bad behavior in the global banking industry that contributed to the financial crisis. HSBC said it had spent $700 million more this year on compliance and risk than a year ago, and that level of expense looked set to stay, meaning it would miss one of its main cost targets. “The cost base of a global bank like ourselves is higher than it was before, because ... it includes a significantly higher compliance and regulatory cost than historically the banks (http://www.reuters.com/sectors/industries/overview?industryCode=128&lc=int_mb_1001) had invested in,” Chief Executive Stuart Gulliver said. “It reflects the fact that standards, foreign policy, etc, all evolve in a world that is a lot less certain than it was 10, 15 years ago.” HSBC’s third-quarter underlying earnings (http://www.reuters.com/finance/markets/earnings?lc=int_mb_1001) fell 12 percent from a year ago to $4.4 billion, after operating expenses jumped 15 percent on the year. That included a $378 million provision for the forex investigation, $589 million to compensate British customers who were mis-sold payment protection insurance products and a $550 million settlement in the United States for mis-selling mortgage-backed securities. Gulliver said the bank was likely to miss a target set out 18 months ago to get costs down to about 55 percent of revenues by 2016. He said it was more likely to be in the high 50s or near 60 percent. It was 62.5 percent so far this year. HSBC added 1,400 more compliance staff in the third quarter and now had 24,800 staff in risk and compliance, or one in 10 of its employees. The bank also said it had been summoned to appear before French magistrates over whether its Swiss private bank had helped French citizens to evade tax, and could face a criminal investigation. “There is quite a bit of upward pressure on costs. It’s an honest assessment of where they are, the regulatory cost of being a large global bank is far greater,” Mike Trippitt, analyst at Numis Securities, said. HSBC said its forex investigation provision covered “detailed” talks with Britain’s financial regulator about alleged manipulation in the $5.3 trillion-a-day forex market. The talks were in relation to systems and controls in one part of its spot forex business in London, it said. Last month HSBC fired two traders in London, sources said. It is one of six banks (http://www.reuters.com/sectors/industries/overview?industryCode=128&lc=int_mb_1001) in talks with the regulator to pay about 1.5 billion pounds ($2.4 billion) in a coordinated settlement, sources have said. HSBC’s provision was lower than the 500 million pounds (799.95 million US dollar) set aside by Barclays and 400 million pound provision by Royal Bank of Scotland, which may have also set aside cash for settlements with other authorities. Banks in Europe and the United States have recently set aside as much as $6.9 billion for possible forex settlements. The forex manipulation relates to daily fixing rates which traders are alleged to have manipulated. The banking industry has already paid out billions of dollars to settle investigations into a range of activities, and HSBC paid a $1.9 billion fine to U.S. authorities in 2012 for breaking anti-money laundering rules.
Click here for full article.
Former UBS exec found not guilty in U.S. tax cheating trial
A former top banker who headed global wealth management at UBS AG was found not guilty on U.S. charges of conspiring with wealthy Americans to hide $20 billion in secret offshore accounts. Raoul Weil, the highest-ranking Swiss banker to stand trial in the United States, was accused in South Florida federal court of conspiracy to defraud the Internal Revenue Service. The verdict was a major setback to the U.S. Justice Department which spent six years seeking to prosecute Weil, including extraditing him from Italy last year. The jury took only 75 minutes to reach its verdict after a three-week trial that ended abruptly when Weil’s defense team decided not to call any witnesses, saying the government had failed to make its case. Legal experts said that while the government presented plenty of evidence that bankers at UBS defrauded the IRS, including some who testified at the trial, it failed to show that Weil was intimately involved in those schemes. “For a jury to acquit after only an hour means that there were some huge holes in the government’s case,” said David Weinstein, a former federal prosecutor now in private practice in Miami. As a result of the verdict, future efforts by the U.S. government to bring tax fraud cases “will require more than just the word of former alleged co-conspirators,” said Weinstein. “Corporate defendants will also be less likely to cooperate with the government and may instead choose to begin fighting the allegations made against their institutions,” he added. Weil was arrested in October 2013 while on vacation with his wife at an upscale hotel in the northern Italian city of Bologna. He pleaded not guilty last year after being extradited to the United States. The trial pitted Weil against several former UBS colleagues who chose to cooperate with U.S. authorities in exchange for favorable sentencing. They testified about using numerous tactics to avoid detection while in the United States, and to help U.S. clients keep their accounts hidden from tax authorities. During his closing argument, Menchel said the prosecution’s case rested on the testimony of ex-employees of UBS who were more guilty of crimes than Weil. Assistant U.S. Attorney Jason Poole told the jury that Weil knew what he was doing was wrong and orchestrated efforts by UBS to circumvent U.S. tax law. The United States in recent years pursued Swiss banks for their role in aiding tax evasion and has increasingly pressured individual bankers. In 2009 UBS admitted to helping U.S. taxpayers hide money and paid a $780 million fine. Credit Suisse pleaded guilty in May to a U.S. criminal charge and will pay more than $2.5 billion in penalties.
Click here for full article.
U.S. judge tosses Paramount movie financing fraud case after trial
Paramount Pictures won the dismissal of a lawsuit by investors in a slate of mid-2000s movies including “Mean Girls” who said the studio concealed a risky business strategy in obtaining $40 million in financing. Following trial proceedings that began October 21, U.S. District Judge Katherine Forrest in Manhattan ruled that the evidence failed to support the investors’ claims and dismissed the case. The judge said the investors failed to present any false statements or actionable omissions by Paramount, and that its alleged misstatements were not material. The ruling came after the investors, including a unit of Allianz SE, finished submitting evidence of Paramount’s liability in the non-jury trial in the case, which had been pending since 2008. “We are gratified by the decision,” said Robert Lawson, a Paramount spokesman. The investors had been seeking $16 million to $24 million in damages from Paramount, which is owned by Viacom, Inc, said James Janowitz, a lawyer for the investors. Asked about the possibility of an appeal, Janowitz said: “We’re certainly considering our options.” The dispute centered on around $40 million of the $231 million that Paramount raised through a private placement for a slate of 25 films that included “Mean Girls,” “The Manchurian Candidate” and “Mission Impossible 3.” Released from 2004 to 2006, the films as a group performed poorly at the box office, both sides agreed. Institutional investors sued in 2008, saying the studio misrepresented its planned use of certain risk-mitigation techniques. The investors said Paramount failed to disclose that it had reduced its plans to sell international distribution rights, favoring instead increased self-distribution. The distribution decision meant there was less revenue to offset losses when the movies failed to deliver financially, according to the lawsuit. The plaintiffs included Allianz Risk Transfer, Marathon Structured Finance Fund, Newstar Financial and Munich Re Capital Markets. They were junior investors in Melrose Investors LLC, a special-purpose vehicle that in turn invested in the film slate.
Click here for full article.
Herbalife to pay $15 million to settle class action lawsuit
Herbalife Ltd (http://www.reuters.com/finance/stocks/overview?symbol=HLF&lc=int_mb_1001) would pay $15 million to settle an 18-month battle over a class action lawsuit brought by a former distributor claiming that the nutrition and supplements company is running an alleged pyramid scheme, according to a U.S. court filing. The company would pay $15 million in cash, plus up to $2.5 million for product returns, according to the court filing that granted preliminary approval for the settlement. Under terms of the settlement, Herbalife would also make “numerous changes” to its business model for at least three years after the settlement receives final approval, the court filing said. Short-sellers and other critics have accused companies such as Herbalife, NU Skin Enterprises Inc (http://www.reuters.com/finance/stocks/overview?symbol=NUS&lc=int_mb_1001) and USANA Health Sciences Inc (http://www.reuters.com/finance/stocks/overview?symbol=USNA&lc=int_mb_1001) of running pyramid-type schemes, questioning their sales model under which distributors make money not only from their own sales but from people they recruit as distributors. Final court approval is still needed. Dana Bostick, a California housing inspector, filed the lawsuit in April last year, claiming that hundreds of thousands of other distributors have failed to make much money by trying to sell the products. “The potential cost, as well as the distraction, disruption and burden of prolonged litigation on the company and its management team, led the company to decide that the terms set forth in the settlement agreement provided the best path for moving forward,” Herbalife said in a statement. The company said the settlement did not contain an admission of liability or wrongdoing. Herbalife gave Carl Icahn three additional seats on its board earlier this year, after the activist investor openly voiced his support for the company. Pitted against him is the company’s most prominent critic, fellow activist William Ackman, who unveiled a $1.16 billion short position against Herbalife in December 2012. Under the agreement, Herbalife must make a number of changes to its corporate policies, including how it defines its distributors, paying shipping charges for products that are legitimately returned by members and making clarifications in its membership agreement to make them less confusing. The product return fund would be available to distributors who file valid claims for the return of unused and unopened products.
Click here for full article.
China
Market
China’s NVC Lighting ex-CEO, bankers investigated for suspected $100 million fraud
NVC Lighting Holding Ltd, China’s biggest lighting manufacturer, said its former chief executive Wu Changjiang and employees of four leading Chinese banks are under police investigation for allegedly helping to divert company funds. NVC suspects Wu of either embezzling or falsely obtaining loan guarantees totaling 623 million yuan ($101.71 million) without the knowledge of the company’s current board. The transactions were arranged by Bank of China Ltd (BOC), China Minsheng Banking Corp, China Construction Bank Corp (CCB) and Industrial and Commercial Bank of China Ltd (ICBC), NVC executives said. “This is a huge international scandal,” NVC’s chief executive Wang Donglei, who took charge of the company after expelling Wu in August. “These banks misled the company and investors with false information.” The investigation casts greater uncertainty over the future of the lighting manufacturer. NVC, whose shareholders include private equity firm SAIF Partners and French electrical systems supplier Schneider Electric SE, has lost about 60 percent in market value since its peak in November 2010. The company’s stock in Hong Kong has been suspended since August 11. Wang said the diversion of funds had halted plans to merge the LED unit of Elec-Tech International Co into NVC. Elec-Tech, controlled by Wang, is NVC’s top shareholder. It is unfair to other shareholders if the merger took place now, he said. NVC founder and former chief executive Wu was expelled from the firm in August, following accusations that he secretly signed licensing agreements on behalf of a company subsidiary. NVC said earlier this month that company funds totaling 448 million yuan had been withdrawn from three unnamed banks without board notification. An estimated 230 million yuan was withdrawn from one of the banks at the end of August, after Wu signed three pledge agreements on behalf of NVC China, the company said in a filing with the Hong Kong Stock Exchange on November 6. Wang said employees at BOC, Minsheng, CCB and ICBC who “conspired in the crime of diverting and defrauding” the company’s fund are also being investigated by the police.
Click here for full article.
China Said to Investigate Surge in Precious Metals Exports
China (http://topics.bloomberg.com/china/) sent investigators to the southern province of Guangdong to probe a sevenfold surge in precious-metals exports (http://www.customs.gov.cn/publish/portal0/tab49666/info720722.htm) of precious metals, including jewelry, rose to about $10.8 billion in September from $1.39 billion a year earlier, according to customs data released October 13. Gold prices in Shanghai dropped the most since December. China has stepped up scrutiny of commodity and foreign exchange trades amid evidence of widespread fraud. Authorities uncovered almost $10 billion in fake trade nationwide and identified 94.4 billion yuan (http://topics.bloomberg.com/yuan/) ($15.2 billion) of loans backed by falsified gold transactions in June. Hong Kong, which borders Guangdong, unexpectedly overtook the U.S. in September as the top destination for mainland shipments. That prompted speculation the data was masking capital inflows to bet on China’s raising currency. “We have seen some significant discrepancies in Hong Kong’s September trade data from China’s,” Liu Ligang, Hong Kong-based head of Greater China economics at Australia & New Zealand Banking Group Ltd., said by e-mail. “Gold, given its nature of small bulk but high value, has been used for such activities in the past.” The surge in exports coincided with renewed appreciation of China’s currency. A stronger yuan and the difference between interest rates (http://topics.bloomberg.com/interest-rates/) in Hong Kong (http://topics.bloomberg.com/hong-kong/) and mainland China may have prompted the increase in cross-border trade, Liu said. The yuan has gained every month since May, including a 0.4 percent rise versus the dollar so far in October. It fell 3.3 percent in the first four months as the central bank weakened the currency to curb speculation it was a one-way appreciation bet. A discrepancy between Hong Kong’s data for imports from China and the mainland’s figures for exports to the city in the past highlighted the practice of over-invoicing to hide the movement of capital into the country. “It looks like deja vu as the steady appreciation in yuan last year fueled arbitrage activity then, and such trade came back again in recent months along with a rising yuan,” Jiang Shu, senior analyst at Industrial Bank Co., said by phone from Shanghai (http://topics.bloomberg.com/shanghai/). “It’s the same thing all over again and precious metals are an ideal tool for these trades.”
Click here for full article.
PetroChina supplier Wison charged with bribery by Chinese authorities
Wison Engineering Services Co Ltd, a major PetroChina supplier, said a bribery charge had been filed against the company and its chairman Hua Bangsong following an investigation by the Chinese government. The probe also focused on irregularities during a tender process in 2004 for a project that generated revenues of about 69 million yuan ($11.3 million) for Wison, which resulted in another charge, the Shanghai-based company said. “A charge in relation to alleged conspiracy to commit a tender-offer fraud has been laid against Wison Engineering and Mr. Hua,” it said in a filing on the Hong Kong stock exchange, with relation to the second charge. Wison is consulting its legal advisers in China regarding the charges. In September, Wison said Chinese authorities investigating the company had seized records and temporarily frozen some of its bank accounts, adding it was no longer able to contact Hua. The investigation of Wison comes at a time when authorities are also probing oil giant PetroChina and its parent, China National Petroleum Corp (CNPC). Wison, which derived most of its revenues from PetroChina over the past few years, swung into the red last year with a net loss of 514 million yuan.
Click here for full article.
Healthcare
Industry
To tell the truth: U.S. top court mulls Omnicare securities case
U.S. Supreme Court justices raised doubts about an appeals court ruling that revived securities class-action claims against Omnicare Inc (http://www.reuters.com/finance/stocks/overview?symbol=OCR&lc=int_mb_1001) over whether the top U.S. provider of pharmacy services to the elderly misled investors prior to a public stock offering. The legal question before the court is whether, under section 11 of the Securities Act, the plaintiffs need only to show that a statement expressing an opinion turned out to be untrue or whether they also need to show the company had reason to believe it was false. Judging from questions posed during an hour of oral arguments, the most likely outcome is that the nine justices will throw out the appeals court decision. But it is not clear whether they might allow the plaintiffs who say the company made untrue statements before the $765 million public offering in December 2005 to have a second chance to pursue their claims. Plaintiffs who subscribed to the offering sued after whistleblower lawsuits claimed the company had paid kickbacks to nursing homes and received kickbacks from drug companies. Several justices appeared to agree that the May 2013 ruling by the Cincinnati-based 6th U.S. Circuit Court of Appeals would need to be thrown out. But they seemed to differ over what standard the courts should adopt in weighing such claims. The appeals court said the plaintiffs had to claim only that the statement was objectively untrue. Justice Samuel Alito said that the high court should “at a minimum” send the case back to the lower court even if it falls short of giving Omnicare a full victory. Justice Stephen Breyer said the appeals court ruling was wrong on two counts. The U.S. government, which filed a friend-of-the-court brief, also urged the court to send the case back to lower courts. Omnicare paid just under $150 million to settle the whistleblower claims. The subsequent securities lawsuit filed by several pension funds focused on statements the company had made saying it was in compliance with the law. A federal judge in the Eastern District of Kentucky dismissed the plaintiffs’ lawsuit in February 2012, saying they had failed to allege that Omnicare had knowingly made an untrue statement. Business groups, including the U.S. Chamber of Commerce, backed Omnicare, saying the appeals court ruling makes it too easy for investors to bring securities class-action claims.
Click here for full article.
Kimberly-Clark faces $500 million suit over Ebola protection gown
A Southern California law firm has sued Kimberly-Clark Corp for more than $500 million, alleging that the Kleenex tissue maker committed fraud by marketing and selling some of its surgical gowns as protection against Ebola. Law firm Eagan Avenatti said it filed a class-action lawsuit in a Los Angeles court, stating that Kimberly-Clark had falsely represented to health regulators and healthcare workers that its “MICROCOOL Breathable High Performance Surgical Gowns” are impermeable and provide protection against Ebola. The law firm said the gowns had failed industry tests and did not meet relevant standards for protection against the disease, placing healthcare workers and patients at “considerable risk”. “We anticipate seeking over $500 million (in damages), which represents at a minimum the amount of revenue that KMB has received from the sales of these gowns,” lead attorney Michael Avenatti told Reuters. The gowns are manufactured by the company’s healthcare business, Kimberly-Clark Health Care, which is being spun off into a separate company to be called Halyard Health. Avenatti said the company had sold millions of these gowns since it was brought to the market in 2011. “Kimberly-Clark needs to immediately recall these gowns and come clean with the FDA, CDC, healthcare professionals and the general public,” Avenatti said in a statement. “The risks associated with continued concealment of the truth are far too great.” The lawsuit is brought on behalf of lead plaintiff and surgeon Hrayr Shahinian and 500,000 others, including healthcare workers and patients, the law firm said.
Click here for full article.
U.S. judge slashes $9 billion award vs Takeda, Lilly over diabetes drug
A U.S. judge slashed a $9 billion punitive damages award to $36.8 million against Takeda Pharmaceutical Co and Eli Lilly & Co over their Actos diabetes drug, although she rejected their request for a new trial. U.S. District Judge Rebecca Doherty in Louisiana in a court filing granted a motion from the drugmakers to reduce the $9 billion in combined punitive damages awarded earlier this year. In the first federal case to go to trial in a consolidated group of lawsuits, the companies were accused of failing to warn users that Actos could raise the risk for bladder cancer. In her ruling, Doherty said the original $9 billion damages award was “excessive” and violated the companies’ constitutional rights to due process. She ordered Takeda to pay $27.6 million and Eli Lilly to pay $9.2 million for a total of $36.8 million. Doherty said that, while far smaller than the jury’s original award, the reduced punitive damages were still “large enough to accomplish the jury’s clear aim: to send a message to the defendants that their wrongdoing must stop...” The $9 billion in punitive damages was among the largest ever from a U.S. jury. Legal experts doubted it would stand, since appellate courts and the U.S. Supreme Court typically reject punitive damages that are vastly out of proportion to compensatory damages. In her ruling, Doherty urged the higher courts to give more guidance on whether there should be an upper limit to punitive damages when a jury finds defendants engaged in “seriously reprehensible behavior.” The companies also had sought a new trial, arguing that the court had made prejudicial rulings on evidence and jury instructions that tainted the trial’s outcome. Doherty rejected that request, writing that the evidence during the trial showed that the companies “disregarded, denied, obfuscated and concealed” for more than a decade that Actos could increase patients’ risk for bladder cancer. Takeda’s U.S. general counsel, Kenneth Greisman, said they viewed the reduced award as a “step in the right direction,” but would continue to challenge the verdict on appeal.” Lilly’s general counsel, Mike Harrington, said in a statement that the company would continue to fight the verdict. “While we have empathy for the plaintiff, we believe the evidence did not support his claims,” he said. Plaintiffs’ lawyer Richard Arsenault called the ruling “thorough” and noted its focus on the need for “meaningful deterrence for these multi-national, billion-dollar corporations.” Actos, an oral medication used to regulate blood sugar levels in patients with type-2 diabetes, has been on the market since 1999. Lilly, which co-promoted Actos from 1999 to 2006, has said it will be indemnified by Takeda for its losses and litigation expenses. The case, brought by plaintiff Terrence Allen, is among more than 3,700 consolidated before Doherty. The companies face thousands of additional lawsuits in state courts. The jury had also awarded Allen $1.475 million in compensatory damages, which both parties agreed to reduce to $1.27 million.
Click here for full article.
SEC Regulatory Actions
SEC Charges Allen Park, Mich. and Two Former City Leaders in Fraudulent Muni Bond Offering for Movie Studio Project
The Securities and Exchange Commission announced fraud charges against the City of Allen Park, Mich., and two former city leaders in connection with a municipal bond offering to support a movie studio project within the city. An SEC investigation found that offering documents provided to investors during the Detroit suburb’s sale of $31 million in general obligation bonds contained false and misleading statements about the scope and viability of the movie studio project as well as Allen Park’s overall financial condition and its ability to service the bond debt. The city and the two officials – former mayor Gary Burtka and former city administrator Eric Waidelich – have agreed to settle the SEC’s charges. “Municipal bond disclosures must provide investors with an accurate portrayal of a project’s prospects and the municipality’s ability to repay those who invest,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “Allen Park solicited investors with an unrealistic and untruthful pitch, and used outdated budget information in offering documents to avoid revealing its budget deficit.” The SEC alleges that Burtka was an active champion of the project and in a position to control the actions of the city and Waidelich with respect to the fraudulent bond issuances. Based on this control, the SEC charged Burtka with liability for violations committed by the city and Waidelich. This is the first time the SEC has charged a municipal official under a federal statute that provides for “control person” liability. Burtka has agreed to pay a $10,000 penalty. “When a municipal official like Burtka controls the activities of others who engage in fraud, we won’t hesitate to use every legal avenue available to us in order to hold those officials accountable,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. According to the SEC’s administrative order against Allen Park and its complaints against Burtka and Waidelich filed in federal court in Detroit, the city began planning the studio project in late 2008 with the belief it would bring much-needed economic development. The state of Michigan had just enacted legislation that provided significant tax credits to film studios conducting business in Michigan. The original plan detailed a $146 million facility with eight sound stages led by a Hollywood executive director, and the city initially planned to repay investors with $1.6 million in revenue from leases at the site. Allen Park issued bonds on November 12, 2009, and June 16, 2010, to raise funds to help develop the site.
Click here for full article.
SEC looks to show more teeth over muni-bond misdemeanors
The Securities and Exchange Commission, emboldened by success in recent cases, will increase in its enforcement actions in the municipal bond market, its director of enforcement said. The SEC, the market’s chief federal regulator, has been cracking down on issuers in the $3.7 trillion municipal bond market for misleading buyers in official statements. Recently, the SE charged a Detroit suburb and two of its former leaders with fraud over an offering. “The bottom line is that if you look at our efforts in the municipal securities arena, our sense is that our focus on this area has begun to change behavior,” said Andrew Ceresney, Director, Division of Enforcement, Securities and Exchange Commission, at a conference organized by Wall Street trade group Securities Industry and Financial Markets Association (SIFMA). “It’s a place we are here to stay and you’re likely to see more enforcement activity rather than less in the municipal securities and public pension fund arena, and over time it will become expected that if there are abuses, we will bring cases,” Ceresney said. In the coming year the SEC will focus on abuses in the pension fund arena, offering and disclosure fraud and broker-dealer abuses, he said. Another expected trend would be working in partnership with criminal authorities, as already happens in the corporate sector, he added. The SEC has been running an initiative to encourage municipal issuers and underwriters to self-report inaccurate statements they may have made in bond documents in exchange for favorable settlement terms. Earlier at the said conference, the head of the SEC, Mary Jo White, said the regulator is looking at its National Market System rule set in the equities market, as well as the role of exchanges acting as self-regulated organizations, to see if adjustments should be made to help reduce complexity, improve transparency and make the markets more robust.
Click here for full article.
SEC Sanctions Two Former Defense Contractor Employees for FCPA Violations
The Securities and Exchange Commission sanctioned two former employees in the Dubai office of a U.S.-based defense contractor for violating the Foreign Corrupt Practices Act (FCPA) by taking government officials in Saudi Arabia on a “world tour” to help secure business for the company. The two employees later falsified records in an attempt to hide their misconduct. Stephen Timms and Yasser Ramahi, who worked in sales at FLIR Systems Inc., agreed to settle the SEC’s charges and pay financial penalties. The SEC’s investigation is continuing. “This case shows we will pursue employees of public companies who think it is acceptable to buy foreign officials’ loyalty with lavish gifts and travel,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “By making illegal payments and causing them to be recorded improperly, employees expose not only their firms but also themselves to an enforcement action.” FLIR is headquartered in Oregon and produces thermal imaging, night vision, and infrared cameras and sensor systems. According to the SEC’s order instituting a settled administrative proceeding, FLIR entered into a multi-million dollar contract to provide thermal binoculars to the Saudi government in November 2008. Timms and Ramahi were the primary sales employees responsible for the contract, and also were involved in negotiations to sell FLIR’s security cameras to the same government officials. At the time, Timms was the head of FLIR’s Middle East office in Dubai and Ramahi reported to him. The SEC’s order finds that Timms and Ramahi traveled to Saudi Arabia in March 2009 and provided five officials with expensive luxury watches during meetings to discuss several business opportunities. Timms and Ramahi believed these officials were important to sales of both the binoculars and the security cameras. A few months later, they arranged for key officials, including two who received watches, to embark on what Timms referred to as a “world tour” of personal travel before and after they visited FLIR’s Boston facilities for a factory equipment inspection that was a key condition to fulfillment of the contract. The officials traveled for 20 nights with stops in Casablanca, Paris, Dubai, Beirut, and New York City. There was no business purpose for the stops outside of Boston, and the airfare and hotel accommodations were paid for by FLIR. Prior to providing the gifts and travel to the Saudi Arabian officials, Ramahi and Timms each had taken FCPA training at the company that specifically identified luxury watches and side trips as prohibited gifts. According to the SEC’s order, when FLIR’s finance department flagged the expense reimbursement request for the watches during an unrelated review of expenses in the Dubai office and questioned the $7,000 cost, Timms and Ramahi obtained a second, fabricated invoice showing a cost of 7,000 Saudi Riyal (approximately $1,900 in U.S. dollars) instead of the true cost of $7,000 in U.S. dollars. They directed FLIR’s local third-party agent to provide false information to the company to back up their story that the original submission was merely a mistake. Ramahi and Timms also falsely claimed that FLIR’s payment for the world tour had been a billing mistake by FLIR’s travel agent, and again used false documentation and FLIR’s third-party agent to bolster their cover-up efforts.
Click here for full article.
Archived Forensic News
Archived Forensic News October 2014
Archived Forensic News September 2014
Archived Forensic News August 2014
Archived Forensic News July 2014
Archived Forensic News June 2014